Managing Finances

Although touched on in other sections of this guide, financial management requires further mention here as to the practical management of cash in at the point of service; and to acknowledge the need to have ongoing income streams to support the delivery of your services. Both of these extremes of the financial scale require careful care and attention from the daily monitoring of petty cash and till receipts through to long-term financial planning and associated quarterly or even monthly financial management reports.

The world of financial management is vast, but there are some aspects that are key from day one. For example, in the first instance newer groups will need to quickly get to grips with setting annual budgets, reporting on actual spend against budget, and developing revised rolling forecasts of spend. It is also important to understand in a broad sense the difference between Cash-Flow and Profit and Loss (P&L), although for a fledgling organisation ‘Cash is King’ and so a careful and regular eye on the bank balance will go a long way to ensuring short-term financial stability.  The concepts of budgets is particularly important in relation to individual services as detailed information on their costs compared with their impact (discussed later) will enable you to make informed decisions about their effectiveness.

Depending on the scale of the organisation reporting tools can range from ‘homemade’ spreadsheets, through to packages like ‘QuickBooks’, or advanced professional packages such as ‘Sage’. You will also need an independent examiner or auditor to verify your reports and accounts on an annual basis. Charity legistlation sets out specific requirements on financial reporting and the type of external scrutiny which is required, depending on income and the value of any asset base *.

In terms of accountability you’ll also need to consider your buying procedures. As well as the practicality of someone undertaking the role of buyer you’ll need to be clear who has authority to approve such purchases and how they will be planned and recorded. For an existing organisation this will probably amount to little more than a slight reworking of existing procedures but for a new-start organisation it is another whole area of work.

 ¹ Except for NHS charities, only those charities with a gross income of more than £25,000 in their financial year are required to have their accounts independently examined or audited – below that threshold, an external scrutiny of accounts is only needed if it is required by the charity’s governing document. Precisely what type of scrutiny is needed depends on the income and assets of the charity. Broadly speaking, an independent examination is needed if gross income ins between £25,000 and £500,000 and an audit is needed where the gross income exceeds £500,000. An audit will also be needed if total assets (before liabilities) exceed £3.26m, and the charity’s gross income is more than £250,000.